Bank of England rate-setter Alan Taylor has called for an “extended hold” on interest rates at their current level, emphasizing that monetary policy should remain steady until there is greater clarity on the economic outlook. Taylor, a member of the Monetary Policy Committee (MPC), made the remarks during a speech at the Barclays-CEPR Monetary Policy Forum.
Current Rate Decision
The MPC voted seven-to-two last month to keep the base rate at 3.75%. Two members, Megan Greene and Huw Pill, dissented in favor of a hike to 4%. Taylor was part of the majority, supporting the hold amid persistent economic uncertainty.
Geopolitical Risks and Potential Cuts
Taylor highlighted that geopolitical factors, particularly the conflict in the Middle East and tariff tensions, are now driving economic outcomes. He stated: “Until we have greater certainty, then, an extended hold at this level is, to me, very much the correct and appropriately measured policy response we need, given the balance of risks.” However, he added that if the Middle East conflict calms and energy prices fall, the Bank should consider cutting rates. “If something closer to that benign scenario plays out, we must be ready to act. In my view, interest rates can and should resume their downward path to neutral,” he said.
Impact on Inflation
Taylor stressed that a peaceful resolution in the Middle East would significantly ease inflation risks, potentially allowing for lower borrowing costs. He concluded: “To conclude, geopolitics is now driving economic outcomes, and hence monetary policy. It is a very uncomfortable and unwelcome place to be, but the reality we must face. So we must watch both economic and geopolitical developments carefully and be ready to act in either direction, as necessary.”
